CHICAGO (AP) -- The government's pension-protection agency agreed Friday to stop fighting United Airlines' plan to eliminate its defined-benefit pension plans, removing the biggest remaining obstacle to what would be the largest pension default in U.S. history.
United said the decision, the result of a settlement with the Pension Benefit Guaranty Corp., resolves a major issue standing between the airline and its successful exit from bankruptcy.
''It will allow the company to move forward as a sustainable, competitive enterprise for the long term _ ultimately United's most important goal,'' spokeswoman Jean Medina said.
But in a sign the battle over pensions is not over, union leaders assailed the move as a ''sellout'' by the pension agency and pledged to fight it in bankruptcy court and elsewhere if necessary. The International Association of Machinists and Aerospace Workers, representing about 19,500 United ground workers, reiterated a threat to strike if pensions are scrapped over its objections.
Terms of the settlement, announced by attorneys for United and the pension agency in federal bankruptcy court, were not released. But the Machinists union said it calls for the PBGC to receive notes in the restructured airline in return for accepting the liabilities associated with terminating the airline's pension plans.
The federal pension insurer has been opposing United's proposed termination of its four employee pension plans since the airline, a unit of UAL Corp., first said last August that it intended to end them. It said the action would put it at financial risk by dumping $6.6 billion in funding responsibility onto the already strapped agency.
But with little apparent likelihood of overturning the plan, it had moved in recent months to assume control of the funds on its own terms, quicker than United's proposal, before further benefits accrued.
A settlement of that dispute would speed transferal of the four plans to the government pension agency _ reducing some benefits to employees from the original plans, which are underfunded by $9.8 billion. But Judge Eugene Wedoff, who had not yet seen details of the agreement Friday, must first approve it.
The pension agency's executive director, Bradley Belt, said that ''under the circumstances'' the agreement is in the best interests of the pension insurance program and others. He said the settlement is superior to any recovery the agency would have gotten as an unsecured creditor in bankruptcy.
''The PBGC has an obligation to reduce its losses for the protection of workers and retirees, other companies that pay insurance premiums, and taxpayers,'' he said. ''By reaching a settlement now, we further that goal.''
Should United succeed in dumping its plans, it would be the largest pension default, topping Bethlehem Steel's $3.6 billion in underfunding in 2002. The nation's second-largest carrier wants to terminate them in order to save $645 million per year, part of the $2 billion in annual savings it says it needs to secure financing to emerge successfully from bankruptcy.
Medina said the settlement would remove the divisive pension issue from the agenda at a labor-related hearing scheduled for May 11. That trial would then focus solely on United's proposal to impose lower wages and benefits following its inability to come to terms with mechanics and ground workers.
But swift denunciation from two unions indicated that the settlement scarcely improved already-tense labor relations at Elk Grove Village, Ill.-based United.
''We are outraged by this avoidable action and will oppose it forcefully in the courts and on the streets,'' said Greg Davidowitch, head of the United branch of the Association of Flight Attendants. ''The fact that the PBGC would sell their claim for a few pieces of silver calls into question their role as protector of employee defined-benefit pension plans.''
Two carriers have already turned their pension plans over to the PBGC after declaring bankruptcy.
The federal agency that guarantees employee pensions said Friday it plans to assume responsibility for the pension payments of 36,000 United Airlines' ground workers and retirees.
A federal bankruptcy judge on Friday agreed to give United Airlines two more months to submit a reorganization plan without competition from outside investors, despite objections from some creditors.